VZCZCXRO3788
RR RUEHCHI RUEHDT RUEHHM
DE RUEHVN #0405/01 1240942
ZNY CCCCC ZZH
R 040942Z MAY 06
FM AMEMBASSY VIENTIANE
TO RUEHC/SECSTATE WASHDC 9875
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUEHBJ/AMEMBASSY BEIJING 1954
RUEHKO/AMEMBASSY TOKYO 1049
RUEHCHI/AMCONSUL CHIANG MAI 0359
RUEHBS/USEU BRUSSELS
RUEATRS/DEPT OF TREASURY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 VIENTIANE 000405 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EB AND EAP/MLS 
PASS TO USAID 
 
E.O. 12958: DECL: 05/04/2011 
TAGS: EAID ECON PGOV PHUM LA
SUBJECT: THE EU AND THE WAGES OF FECKLESS AID IN LAOS 
 
REF: A. VIENTIANE 76 
     ¶B. VIENTIANE 152 
     ¶C. VIENTIANE 212 
     ¶D. VIENTIANE 302 
     ¶E. VIENTIANE 307 
     ¶F. VIENTIANE 360 
     ¶G. VIENTIANE 321 
     ¶H. VIENTIANE 367 
     ¶I. VIENTIANE 396 
 
VIENTIANE 00000405  001.2 OF 002 
 
 
Classified By: Ambassador P. Haslach.  Reason 1.4 (D) 
 
¶1. (C) Summary: Feckless aid has long provided a life-line to 
the Lao government, despite its failure to meet conditions 
set for certain projects and its regular violations of human 
rights.  Major donors such as the Japanese look set to 
continue to bankroll the regime unconditionally, and the EU 
has just announced plans to join them in this untoward 
course.  End summary. 
 
Paving the road to. . . 
----------------------- 
¶2. (C) Refs. A, C, and E are recommended to those interested 
in how and why Laos has failed to reform and progress, even 
though surrounded by vibrant economies bent on treating it as 
their poorest province.  Unconditional assistance has been 
the main reason for this.  The local newspapers on any given 
day are full of reports of more aid rolling in.  A 
half-century of aid from successive generations of donors (of 
quite different political stripes) has produced a culture of 
aid dependence but has not resulted in anything like levels 
of development commensurate with the cost.  Despite all the 
money and all the good intentions, Laos remains one of the 
poorest and least developed countries in East Asia, with one 
of the regions most repressive governments -- a perfect 
example of the effects of moral hazard. 
 
There's more than one born every minute 
------------------------------- 
¶3. (C) Major donors persist in handing money directly to the 
Lao Government, along with wispy admonitions that the 
denizens of a military dictatorship in Communist garb should 
go forth and do good with it.  While the GoL admits to about 
65 percent of its budget being ODA, informed observers here 
reckon that figure at 80 percent or more, with few strings 
attached.  There is little or no oversight on how such 
assistance money is really used. Among the few principles 
hard-headed observers here can agree upon is that money given 
directly to the GoL quickly escapes from view and is lost to 
any real reckoning. 
 
¶4. (C) The USG gives comparatively small amounts of aid to 
Laos, and almost exclusively through NGOs and IOs.  We also 
require regular accounting and routinely go out to project 
sites make sure conditions of the aid are being met. On the 
other end of the spectrum Japan (bilaterally), and ADB 
(multilaterally) give vast sums and are heedless of 
accounting or practical results.  The EU, which has always 
been somewhere in the middle with a multitude of development 
projects - on the whole competently administered - is fixing 
to join them. 
 
Look who we're bankrolling 
-------------------------- 
¶5. (C) GoL line ministries (Potemkin affairs facing outboard 
to receive aid from donors) have been gathering in foreign 
aid to the tune of about $500 million annually, while the 
real GoL (the military, security apparatus, and upper 
echelons of the Communist Party) have focused solely on 
remaining in power, violating basic human rights and spending 
other people's money along the way.  That Laos remains a 
military dictatorship behind a ministerial facade was made 
abundantly clear this year, when human rights violations 
ranging from massacres to imprisoning children have been 
regularly reported (Refs. F, H, I and previous; refs. B, E, G 
and previous). 
 
A perverse move 
--------------- 
¶6. (C) In early April the donor community in Vientiane met 
for a periodic informal donor's meeting, and several donors 
recounted the programs they were pursuing and described their 
plans for the future (ref. C and previous described ADB's 
plan, annunciated at an earlier meeting).  There was talk 
 
VIENTIANE 00000405  002.2 OF 002 
 
 
about the GoL's recalcitrance and the need to tighten up on 
aid goals and procedures, but main thrust of the discussion 
was that donors must find ways to continue giving, despite 
declining aid budgets.  Lip service only was paid to the 
great need for policy reform, strategic issues with leverage 
effects, and a strategic dialogue. 
 
¶7.  (C) There was also much discussion of the Poverty 
Reduction Support Operation (PRSO) - a document drafted by 
the World Bank and GOL that is supposed to represent Laos, 
own declared needs and strategies.  The World Bank will hold 
and monitor donor contributions in a trust fund intended to 
support the PRSO.  These monies will then go directly to the 
GOL.  This is meant to be the preferred mechanism for giving 
aid to Laos in the future, in order to foster Lao "ownership" 
of development programs. 
 
¶8. (C) The corker was when the EU Resident Representative 
announced a European aid strategy for Laos from 2007 to 2013 
that will have at its core direct contributions to the PRSO 
trust fund, using it to provide direct support for the Lao 
budget.  This will comprise 70 percent of the EU,s total 
bilateral contribution (the real amounts are not yet know, 
and will not be until June, at the earliest).  The remaining 
30 percent will be equally divided among resettlement issues 
(forced resettlement is a problem in Laos, and the EU 
Resrep's particular issue), trade and economic cooperation 
and development, and governance.  There will be contributions 
to regional efforts as well, under the EC-ASEAN Cooperation 
Agreement, and efforts will be made to have the EU 
contributions parallel bilateral aid efforts by individual EU 
states.  However, the project-specific approach followed by 
the EU heretofore is to be largely abandoned. 
 
Why Switch? 
----------- 
¶9. (C) The EU says the project approach produced results that 
EU officials find difficult to quantify. They also note there 
has been insufficient delegation of authority to EU sponsored 
project field staff, problems with corruption, and 
insufficient integration of project goals into the recipient 
countries' development goals.  Switching to direct 
contributions to the budget is also supposed to lessen the 
EU's administrative burden.  The EU representative defended 
this switch as enhancing Lao "ownership" of the aid program, 
and a means to ensure that European aid supports Lao 
priorities, although to many observers here GoL priorities 
are much of the problem.  This approach was repeated in the 
EU's decision to provide Avian Influenza assistance through a 
newly established World Bank trust fund which will bankroll 
GOL efforts in this sector. 
 
Comment 
------- 
¶10. (C) No one is prepared to hold the GoL's feet to the fire 
in accounting for the assistance they receive.  GOL 
backsliding on, for example, the conditions of the Nam Theun 
II Hydropower project, or the IMF,s Poverty Reduction Growth 
Facility (especially in the banking sector and tax/revenue 
reform) is conveniently ignored by most embassies.  Graver 
issues, such as human rights abuse, have never been linked to 
aid by major donors.  As a whole, the donor community is 
content to wring its hands, and then get on with the giving. 
The new EU position on aid would be to the good in a country 
in which the government acts in good faith and in the 
interests of its citizens, but Laos is not that kind of 
country.  For our part, we continue to remind our fellow 
donors that there are consequences for providing 
unconditional funding such a government - though the donors, 
of course, are not the ones to suffer them.  We also repeat 
what we have said before: to bankroll a regime such as this 
one is to be complicit in its career. 
HASLACH